The Sounds of Success; Digital Downloads over the Internet Are Helping Purveyors of Classical Music Stage an Encore
Seno, Alexandra, Newsweek International
Byline: Alexandra Seno
Classical music hardly seems like a growth business. We're forever reading about how concert audiences are graying, and new artists must flounce around fiddling in tank tops and platform heels to get attention (think Vanessa-Mae and the gals from Bond). In fact, classical music is doing a lot better than you might think. Although total sales in all music categories (on- and offline) fell 5 percent last year, classical sales grew by a whopping 22 percent. "When I talk to people in the industry, everyone is making money," says Klaus Heymann, chairman of Naxos, the world's biggest independent classical-music company, based in Hong Kong.
So why are Heymann and his peers singing such a different tune? Because classical retailers have been the best at exploiting the potential of online revenue. The biggest companies of the classical genre are now earning about 20 percent of sales from digital music, double or triple the average for other categories. This is a tremendous advantage for them, as selling music in the digital format can be twice as profitable as it is offline. The bottom line: while this may well be one of the worst years for music sales in general since charts were started in the 1960s, most classical labels expect revenue to continue to rise.
Classical music has proved to be ideal for the digital-music era. The complex and subtle nature of the recordings makes them tough to pirate; the classical customer is technologically savvy and more likely to buy in bulk, and the viral nature of the Net has allowed the music to be heard by new audiences, fueling overall sales. "The classical-music sector has done a very good job of maximizing the opportunity of the Internet," notes Mark Mulligan, a digital music analyst at Forrester Research.
It's all part of the "Long Tail" theory of cybercommerce, in which companies do a good business selling a few units of many, many things. Many other musical genres still follow the traditional "big hits" business model: 80 percent of revenue coming from 20 percent of inventory (that's why labels generally push a few artists very hard). Classical is different--consumers like to geek out on niche recordings, reveling in different versions of the same work or finding obscure versions of well-known pieces. Of the 146,031 tracks offered by Naxos online, about half have sold only 10 units or less. Still, that was enough to push digital revenues to a quarter of the company's total $82 million in sales for 2006, increasing profitability and helping offset a decline in offline sales. Heymann, a serious classical buff who started the company 20 years ago, says, "We could live very comfortably if from tomorrow we never sold another CD."
Indies like Naxos have been the most aggressive online, but even at Decca Label Group, the classical division of Universal, the world's largest music company, the digital-music business now contributes a fifth of sales. This is in part because illegal peer-to-peer file sharing hasn't hit classical music at all, a sharp contrast to the way it has decimated the pop industry. Low-quality tracks, which are often uploaded as smaller files on networks like LimeWire and Gnutella, aren't a problem when you want to listen to relatively banal stuff like Britney. …